a low cost vehicle concept for the u.s. market

8/10/2019 A Low Cost Vehicle Concept for the U.S. Market

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A LOW COST VEHICLE

CONCEPT FOR THE

U.S. MARKET

Benchmarking the Tata Nano and

Adapting it to the U.S. Market

Hussain Tajmahal

Shantanu Ranadive

Institute for Advanced Vehicle Systems

College of Engineering and Computer Science

University of Michigan-Dearborn


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Copyright 2011 by the College of Engineering and Computer Science,


All rights reserved.

Printed in the United States of America by Sheridan Books.

Except as permitted under the United States Copyright Act of 1976, no part of this publication

may be reproduced or distributed in any form or by any means, or stored in a data base or

retrieval system, without the prior written permission of the University of Michigan-Dearborn.

ISBN: 978-0-933691-16-2

Permission to reprint may be obtained by contacting:

Director, Institute for Advanced Vehicle Systems

College of Engineering and Computer Science


2066 IAVS

4901 Evergreen Road

Dearborn, MI 48128-1491

Published by the College of Engineering and Computer Science,



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A Low Cost Vehicle Concept for the U.S. Market

i

TABLE OF CONTENTS

PREFACE ................................................................................................................................................... iii

ABOUT THE AUTHORS ....................................................................................................................... iv

ACKNOWLEDGEMENTS ...................................................................................................................... v

ABSTRACT .............................................................................................................................................. vii

CHAPTER 1: INTRODUCTION ............................................................................................................ 1

CHAPTER 2: TATA NANO .................................................................................................................... 7

2.1 Introduction: Tata Nano .................................................................................................................. 9

2.2 Product Development: Tata Nano ........................................................................................... 11

2.2.1 Concept ................................................................................................................................ 11

2.2.2 Design Process .................................................................................................................... 12

2.3 No Benchmark Vehicles ............................................................................................................ 13

2.4 Manufacturing/Sourcing Strategy ........................................................................................... 15

CHAPTER 3: LCV DEVELOPMENT PROCESS............................................................................... 17

CHAPTER 4: TARGET COSTING ...................................................................................................... 21

4.1 Traditional CostingApproach ..................................................................................................... 23

4.2 Target Costing Approach .............................................................................................................. 25

4.3 Target Cost for LCV ....................................................................................................................... 25

CHAPTER 5: BENCHMARKING ........................................................................................................ 29

5.1 Dimensions...................................................................................................................................... 32

5.2 Performance .................................................................................................................................... 34

5.3 Chassis Systems .............................................................................................................................. 36

5.4 Safety Systems ................................................................................................................................ 37

5.5 Additional Features ....................................................................................................................... 39

CHAPTER 6: LCV ATTRIBUTES AND DESIGN ............................................................................ 43

6.1 Customer Requirements................................................................................................................ 45

6.1.1 Quality Function Deployment Chart ................................................................................... 46


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6.2 LCV Target Specification .............................................................................................................. 48

CHAPTER 7: MODIFICATIONS......................................................................................................... 51

7.1 Structure ......................................................................................................................................... 53

7.2 Powertrain ...................................................................................................................................... 60

7.3 Safety ............................................................................................................................................... 62

7.4 Chassis: Brakes, Steering, Wheels and Tires ............................................................................. 63

7.5 Interiors .......................................................................................................................................... 68

CHAPTER 8: LCV SALES POTENTIAL............................................................................................. 75

8.1 Current Market Trends ................................................................................................................. 77

8.2 Sales Estimation ............................................................................................................................. 80

CHAPTER 9: DISCUSSION & CONCLUSION................................................................................ 839.1 LCV Manufacturing, Assembly and Marketing Strategies ..................................................... 85

9.2 Conclusion ...................................................................................................................................... 86

9.3 Future Work ................................................................................................................................... 87

REFERENCES .......................................................................................................................................... 89


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iii

PREFACE

This book was written because of the interests and initiatives of Hussain Tajmahal and

Shantanu Ranadive to study the Tata Nano and answering the question -- "Can the Tata Nano

or a similar low cost vehicle be developed for the U.S. Market?" This work began as a termproject in AE 500, a required course in our masters program in Automotive Systems

Engineering. The course prepares the students to understand Systems Engineering and its

implementation in automotive product development.

Dr. Roger Shulze, the director of our Institute for Advanced Automotive Systems, encouraged

us in continuing the project and also provided some financial support. Through a number of

project meetings, we decided to study the Tata Nano in detail and other low cost vehicles sold

in the U.S. market and discussed if a vehicle could be produced at manufacturer's suggested

retail price (MSRP) of $8000.

The report describes the research approach and analyses conducted by assuming the MSRP of$8000 to allocate target costs to various automotive systems in the low cost vehicle to meet the

key requirements for the U.S. market, namely the Federal Motor Vehicle Safety Standards. The

authors have described the engineering modifications that need to be incorporated to meet the

project goal.

The project has not only suggested a break-down of target pricing goals in developing a low

cost vehicle, but the experience gained by the authors and myself was very satisfying in

understanding the challenges ahead for the automotive industry.

Vivek D. Bhise

March 4, 2011


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ABOUT THE AUTHORS

Hussain Tajmahal is currently a graduate student in the Automotive Systems Engineering

program in the College of Engineering and Computer Science at the University of Michigan-

Dearborn. He received his bachelors degree of engineering in Automotive Systems from

University of Mumbai, India. He is technically inclined in modeling automotive systems and is

specializing in CAE (Computer Aided Engineering) analysis while developing an innovative

architecture for engine cooling systems. He is passionate about Formula one racing, tennis, and

cricket.

Shantanu Ranadive is currently a graduate student in the Automotive Systems Engineering

program in the College of Engineering and Computer Science at the University of Michigan-

Dearborn. He received his bachelor of engineering degree from University of Mumbai in

Automobile Engineering. He is interested in Hybrid and Electric vehicle technology and

working on implementing new concepts and technology for "green" vehicles, their overall

energy dependence and infrastructure development.


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ACKNOWLEDGEMENTS

The authors acknowledge the first hand information provided by professionals at Tata

Technologies, Novi, Michigan, USA for allowing first hand access to the vehicle, the Tata Nano

and providing industrial insights related to the development of the Tata Nano. The authorsfurther extend their gratitude to A2MAC1, an automotive benchmarking company in Ypsilanti,

Michigan, USA for providing online access to www.a2mac1.com during the initial course of

study.

The authors greatly acknowledge the encouragement, guidance and motivation provided by Dr.

Vivek Bhise, a professor in the Industrial and Manufacturing Systems Engineering Department

of the College of Engineering and Computer Science at the University of Michigan- Dearborn,

for pursuing this study. They appreciate his timely feedback on the progress of the study and

noted his valuable suggestions, which helped in compiling the entire study.

The authors greatly acknowledge the motivation by Dr. Roger Shulze, director of the Institutefor Advanced Vehicle Systems at the University of Michigan- Dearborn, for the study in terms

of his valuable input and for providing financial support during the course of the study.

The authors appreciate the administrative assistance by Deborah Stark-Knight, Administrative

Specialist at Institute for Advanced Vehicle Systems at the University of Michigan- Dearborn for

administrative services.


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ABSTRACT

This book presents a development strategy for a Low Cost Vehicle (LCV) concept set at a target

MSRP of $8000 (USD) for the U.S. market. Tata Nano is currently the worlds least expensive car

in production. It is developed using similar principles of the Henry Fords Model T concept.This project adopts a methodology similar to the one used in the development of the Tata Nano

and is considered as the starting point for the LCV development. It gives an overview of the

unique product development process of the Tata Nano and shows the possibility of applying

Systems Engineering principles. The major automotive systems were assigned specific cost

targets based on the set target cost of $8000 (USD) for the LCV. The specifications of the systems

were derived based on customer needs and the U.S. Federal Motor Vehicle Safety Standards

(FMVSS) using the Quality Function Deployment (QFD) technique and by comparing and

benchmarking current low cost vehicles sold in the U.S. for their specifications. System level

modifications necessary to comply with the FMVSS are considered. Adhering to the Systems

Engineering principles, sales volume, target customers, manufacturing and assembly factors are

discussed to realize the importance of the integration of all aspects of vehicle product

development to achieve the target cost.


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CHAPTER 1:

INTRODUCTION


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1.1 INTRODUCTION

The economic recession of the past several years has severely affected the automotive industry

and automotive sales. One of the reasons that OEMs had difficulty in selling their products was

their relatively high selling prices. This increased unsold inventory and consequently led tohuge losses and the need to sell their products at significant discounts. This caused several

million dollar losses to the original equipment manufacturers (OEM) which in turn affected the

employees through lay-offs and reductions in pay and benefits. The automotive industry has

been constantly evolving in terms of technology, vehicle safety and extensive research has been

implemented to maximize customer safety and satisfaction. The technology comes with a price

which is borne by both the automotive companies and end users of their products. This points

out the fact that with added features such as maximum safety features, the overall cost of the

vehicle increases which is generally not tolerated by the customer. This creates an environment

of technological redundancy, where despite available technology the end user is not able to

utilize these technologies fully.

With the advent in technology and the need to meet more stringent federal safety and emissions

requirements, the task of designing and building automotive products has become more

challenging. The US Federal Motor Vehicle Safety standards provide performance requirements

to the automotive companies to design vehicles to satisfy the core objective of increased

occupant safety. It is up to the automotive companies and their suppliers decide how to meet

these requirements and to perform research and development of the systems and components

needed to meet these federal standards. This can lead to similar technologies being incorporated

to meet safety and emissions requirements.

Therefore, to increase competition, the OEMs need to create a distinct USP (Unique SellingPoint) target -- involving additional features, unexpected but delighting features (that create

"Wows"), and new infotainment features to attract the customers. These additional features

require a lot of extra development time, resources and ultimately have to be borne by the end

user in terms of additional cost. These additional features, though an advent in technology, in

reality seem to be redundant at times. On the contrary, if the USP is shifted to cost, then OEMs

would focus on satisfying the basic customer attributes and strictly follow the government

regulations and thus a low cost vehicle concept would emerge.

Figure 1 below represents the relationship between cost and additional features offered in

current automotives. The linear relationship suggests that the MSRP of the vehicle increaseswith an increase in additional features.


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Figure 1 Relationship between Vehicle Cost and the Features Offered

The development plan behind every vehicle is based on some core objectives. The core

objectives can range from the maximum fuel efficient car to a high-performance car generating

500 hp of power. Depending on the customer requirements and current market needs, different

vehicles are launched in the automotive market in that region.

The core objective of this project is to develop a concept whose ultimate selling point (USP)

would be its cost, and hence a Low Cost Vehicle (LCV) concept was conceived.

As diverse as the world is, so is the automotive world. There are different government

regulations, emission standards and of course different customer requirements in different parts

of the world. Although there are many universal standards set for a current vehicle, it remains

up to the countrys discretion to adopt these standards.

The low cost concept was inspired after a comprehensive study of a Tata Nano (provided by the

Tata Technologies, Novi, Michigan), the worlds least expensive automobile currently inproduction and sale only in India. After studying the Tata Nano, it was evident that with the

application of core Systems Engineering Principles the ultimate objective is achievable.

Thus, the objectives of research work presented in this book were: 1) to develop a low cost

vehicle concept and 2) to illustrate the methodology used to arrive at its cost structure.

A thorough study of the Tata Nano helped in understanding the potential of applying systems

engineering principles to achieve a specific target. The study of Tata Nano helped to create a

vantage point for the future vehicle development process. Understanding the global automotive

market and the use of resources by different regions across the world may help in increasing theefficiency of the vehicle development cycle.

This book presents a development strategy for a Low Cost Vehicle (LCV) concept set at a target

MSRP of $8000 (USD) for the U.S. market. Tata Nano is currently the worlds least expensive

car in production and is developed on similar principles of the Fords Model T concept. This

project adopts a similar methodology behind the development of the Tata Nano and is

considered as the starting point for the LCV development. It gives an overview of the unique

FEATURES

COST


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product development process of the Tata Nano and shows the possibility of applying similar

methodologies, based on systems engineering principles, for future low cost vehicles which will

be suitable for the American market. The major automotive systems were assigned specific cost

targets based on

The target cost of the LCV was set at $8000 (USD). The specifications of the systems were

derived based on customer needs and the U.S. Federal Motor Vehicle Safety Standards (FMVSS)

using the Quality Function Deployment (QFD) technique and by comparing and benchmarking

current vehicles sold in the United States for their specifications. System level modifications

necessary to comply with the FMVSS are considered. Adhering to the Systems Engineering

principles, sales volume, target customers, manufacturing and assembly factors are discussed to

realize the importance of integration of all aspects of vehicle product development to achieve

the final target.


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CHAPTER 2:

TATA NANO


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2.1INTRODUCTION: TATA NANO

Launched in summer 2008, Tata Nano has introduced a new chapter in automotive industry.

Starting with a clean sheet of paper, the concept of the Tata Nano is now the worlds least

expensive production car. The Tata Nano has put the basic automotive and systems engineeringapplications to test and has proved successful. The motive behind the Nano was to provide a

more affordable and safer means of transport to a typical middle class Indian family as opposed

to a two-wheeler motorcycle. Currently, the base Tata Nano is sold for INR 123,361 (ex-

showroom Delhi, India), equivalent to $ 2776.21 ($1 = INR 44.435, 26thOctober, 2010) [1].

Figure 2.1 Tata Nano LX[1]

Table 2.1 Specifications of Tata Nano [1]

Specifications Vehicle Model

Tata Nano

Price ($) 2500

Dimensions

Overall length (in) 122.01

Overall width (in) 58.98

Overall height (in) 63.50

Wheel base (in) 87.80

Wheel track (in) Front 52.2

Wheel track (in) Rear 51.8

Headroom (in) Front/Rear 36.6

Legroom (in) Front/Rear rear 31.5 max & 24.41min


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Specifications Vehicle Model

Tata Nano

Price ($) 2500

Body Type 5 - door HatchbackConstruction Uni-body

Weight Curb (lbs) 1322.77

Type 2 cylinder

Fuel Gasoline

Horsepower @ rpm 34.52 @ 5250

Torque (lb-ft) 35.4 Nm @ 3000

Power/Weight Ratio (Hp per ton) 57.44

Displacement (liters) 0.624

Valve Train 4-Valve SoHC

Fuel System Multi-Point Fuel Injection

Emission class EURO III

DrivetrainDrive Configuration Rear wheel drive

Type 4 Forward + 1 reverse

PerformanceMax Speed 105 km/h

0 - 60 km/h 0-60 km/h (37 mph): 8 seconds

SteeringType Mechanical Rack and Pinion

Turning Dia - Curb to Curb (ft) 26.25

Front (in) 7.086 in dia. Drum brake

Rear (in) 7.086 in dia. Drum brake

FrontIndependent, Lower Wishbone, MacPherson

Strut Type

RearIndependent, Semi Trailing arm with coil

spring and hydraulic shock absorbers

Wheels and

tires

Wheel Rim : 4B x 12 - steel cover

Tires :Radial, Tubeless Tires Front - 135/70 R12

Rear - 155/65 R12Spare - 135/70 R12

Fuel

Tank Capacity (gal) 3.962 (15 lts)

EPA Mileage estimates(city/highway/combined)

56 MPG

3- point seat belt; Front Seat-beltpretensioners and force limiters

3 - point Seat belts, Driver and FrontPassenger

3 seat belt rear; 3 - point Rear Passenger Lap belts

Front and Rear crumple zones Door intrusion beam


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2.2 PRODUCT DEVELOPMENT: TATA NANO

2.2.1 Concept

Tata Nano was conceived by Chairman of Tata Motors, Mr. Ratan Tata when he decided tomove an average middle class Indian family from a 100cc, relatively unsafe motorcycle into a 4-

door complete car (see Figures 2.2 and 2.3).

Figure 2.2 Indian Family on a Motorcycle

I observed families riding on two-wheelers - the father driving the scooter, his young kid standing in

front of him, his wife seated behind him holding a little baby. It led me to wonder whether one could

conceive of a safe, affordable, all weather form of transport for such a family - Ratan Tata


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Figure 2.3 A Complete Car Tata Nano

Mr. Ratan Tata had told a Financial Times correspondent on the sidelines of the Geneva Auto

Show that he was thinking of making a car that would cost about 2,000 [3]. Adjusted against

the then exchange rate of the rupee, that translated to Rs 1 lakh (1 lakh = 100,000). Mr. Tata says

he had never really defined the project in his head exclusively by its pricing. It was the media

that said it, says Mr. Tata. But we decided to accept the challenge. With that resolution, Mr.

Tata imprisoned himself and his engineers in a promise to fulfill which they would have to all

but rewrite the principles of automotive engineering.

2.2.2 Design Process

What set the Tata Nano apart is its extreme low cost. There was no such low cost vehicle ever

designed for production. This led to a back-to-basics approach where there are no available

benchmark vehicles to take cues from. This is a very important standpoint on which a car is

conceived today where automotive companies are in a cut-throat competition to launch their

vehicles ahead of their competitors. And considering an approach starting from a clean sheet of

paper definitely would add more time to the entire design process. This could be contradictorywhen designing the least expensive car where any additional time equals additional R&D

expenses. In the case of the Tata Nano, the clean sheet approach helped in keeping the overall

design inexpensive as the resulting innovation helped in reducing other costs factors drastically

and hence the overall product, i.e. Tata Nano, was produced at a shockingly low cost.


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Every design process has core objectives to be achieved for the product being developed. For

Tata Nano the main design factor was the cost and basic functionality. All design parameters

were cost-centric and functionality-centric. This does not imply that the Tata Nano was a mere

car with fewer specifications. The Nano R & D Team had laid down three main parameters as

the basis for which they formulated and designed the Nano. These three parameters were:

1.

Acceptable Cost

2. Acceptable Performance

3. Regulatory Compliance (current as well as future) [3]

Customer requirements were always on the top of the list and engineers and the entire team

worked toward one goal to achieve maximum customer satisfaction and followed the three

design guidelines. The team followed a football team management approach which made the

member with the ball the leader [3]. This aided in keeping the team motivated in challenging

situations and helped the entire team to overcome internal differences, which ultimately helped

them to be focused on the final goal.

2.3 NO BENCHMARK VEHICLES

Tata Nano had no precedence or prior concepts. Thus, it was critical to come-up with

specifications for the vehicle. The nearest benchmark vehicle was a Maruti Suzuki 800 (see

Figure 2.4), then the least expensive car in India, which is almost twice the cost of the Tata

Nano. Table 2.2 below shows the base model comparison of the current available Maruti Suzuki

800 and the Tata Nano in India.

Figure 2.4 Maruti Suzuki 800 [4] and Tata Nano (L to R)

(Tata Nano is 21% more spacious and 8% smaller than the Maruti Suzuki 800.)


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Table 2.2 Comparison of Specifications of Maruti Suzuki 800 [4] and Tata Nano [1]

Specifications Maruti Suzuki 800 Tata Nano

Price Rs. 1.97 lakh ($ 4477) Rs. 1.23 lakh ($ 2776.21)

Curb Weight 1430 1323 lbs

Engine Type 796cc, 37 bhp, 3-cylinder, front 624cc, 34 bhp,2-cylinder, rear

SteeringMechanical Rack and Pinion

SteeringMechanical Rack and Pinion Steering

Transmission TypeManual; Synchromesh on all

forward gears.

Manual; Synchromesh on all forwardgears with overdrive. Sliding mesh

for reverse gear.

Number of Gears 4 forward + 1 reverse 4 forward + 1 reverse

SuspensionFront: MacPherson Strut Type;coil springRear: coil spring & gas filled

shock absorbers

Front: Independent ; Lower wish

bone; MacPherson Strut TypeRear: Independent; Semi Trailing arm

with coil spring & hydraulic shockabsorbers

BrakesFront :DiscRear: Drum

Front & Rear : 180 mm drum brake

Wheelbase 2175 mm 2230 mm

Seating Capacity 4 persons 4 persons

Fuel Tank Capacity 7 gallons 4 gallons

Max. Speed 70 mph 65 mph

Fuel Economy 33.4 mpg 56 mpg

Engineers at Tata developed a high pressure die-cast engine which delivered an impressive 34

bhp from 624cc engine as compared to 37 bhp from a 796cc Maruti Suzuki engine. This lead to

filing of 10 patents in engine development and after the entire product development cycle 37+

patents were filed on the Tata Nano [3].

There were many technical innovations implemented on the Tata Nano other than the ones

described above.

1. Tata Nano is a tall small car; therefore in order to balance the high C.G of the car, a

higher rear suspension is employed. The rear suspension semi trailing arm with coilspring and hydraulic shock absorber is similar to the ones employed in two-wheelers

sold in India.

2. Instrument panel comprising of speedometer and digital fuel indicator is similar to that

of the two wheelers, as shown in Figure 2.5 below.

3. Electrical wiring harness, lamps, etc. were also inspired by the two wheelers.


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4. Strong seat anchor which is one of the safety features, and the window winding

mechanism, are derived from helicopter designs.

Figure 2.5 Instrument Panel of Tata Nano [5]

2.4 MANUFACTURING/ SOURCING STRATEGY

To achieve its ambitious cost reductions, Tata Motors had to get vendors to pare margins and

persuade them to produce components at lower costs. The vendors had to invest in new

processes and methods to reengineer their products to specifications that were rigidly guided

by cost, performance and regulatory compliance. Many of them would not make profits for

years. For example, P.K. Kataky, director of battery maker Exide, was reported as saying that

the companys margins would be thin and it would start making money only after two or three

years [3].

Suppliers chosen for Tata Nano manufacturing plant were mostly clustered in auto centers

across India. The challenge Tata faced was to pursue the suppliers to set-up and invest in new

vendor facilities on-site at the assembly location of Tata Nano. About 15-20 vendors would

finish their plants along with Tata Motors.


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CHAPTER 3:

LCV DEVELOPMENT

PROCESS


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At one Toyota board meeting, Toyota Chairman Eiji Toyoda asked, Should we continue building cars as

we have been doing? Can we survive in the 21 st century with the type of R&D that we are doing? ...

There is no way that this [booming] situation will last much longer [6]. He was practicing Principle

1: Base your management decisions on a long-term philosophy, even at the expense of the short-

term financial goals [6].

The development process was conceptualized based on the above principles. It highlights the

constant need for change of the product development process with the needs and demands of

the market. The traditional sequential approach of handing over the job from department to

department is considered obsolete now. Integration of all departments, ideas and other factors,

from the concept phase to production, helped in building a complete car for todays market.

This method has proved to be exceptionally successful,for instance the Smart product development

process [7],and the results can be seen in the automotive boom and product variation since the

last decade. It is obsolete to consider the market needs to be a stagnant part in a product

development process. The market dynamics play the most vital role in the entire product

development process. This fact can be reinforced by the practice of developing more than one

concept, which is developed considering multiple factors, for a single product. Thus, the

concept best satisfying the prime product objectives is generally selected.

The prime objective of the LCV discussed here is to develop a vehicle for $8000 for the US

market. The objective can be broken down further as a vehicle satisfying stringent US safety and

emission standards, a vehicle comfortable for US consumers and with a strict budget of $8000.

Thus, the Systems Engineering approach to be followed here will be a combination of the

process similar to that discussed above and a process designed to meet the target cost, i.e.

Target Costing Approach.

The approach followed for the LCV development included the following steps (see Figure 3.1):

1. Study of current automotive market trends in the US

2. Benchmarked Tata Nano and its development methodology

3. Set the Target Cost for the LCV

4.

Distribute costs to vehicle systems

5. Understand the basic LCV requirements (Customer attributes and Government

Regulations)

6. Design/Develop systems, subsystems and components with key focus on basic

functionality, requirements and target cost

7. Estimate sales potential for LCV

8. Manufacturing, assembly and marketing considerations


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Figure 3.1 Low Cost Vehicle Concept Development Process [8]

Figure 3.1 shows a flow diagram of the development process for the Low Cost Vehicle concept.

The development process is based on the Systems Engineering principles which involve

integration of various aspects of product development such as the customer requirements,

market demand, government regulations, marketing conventions, sales potential,

manufacturing layouts, assembly options, material feasibility, etc. These aspects or

considerations are incorporated at a very early conceptual stage of development. The aspects

involve use of: historical data, statistics, market trends, reasonable assumptions and alternative

solutions were proposed to meet the one common objective of achieving a target cost for the

Low Cost Vehicle concept.


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CHAPTER 4:

TARGET COSTING


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4.1 TRADITIONAL COSTING APPROACH

Traditional methods are not forward-looking. They do not consider the need for the cost, what

drives the cost, or even if the process or product characteristic/function, is, in fact, necessary.

What results, too often, are over-engineered products which cause an increase in costs whichmay not be required per the original customer needs. This points to the fact that customers are

the ultimate cost bearers for these over-engineered products.

It is understood that the cost is always the major factor for any product development process.

But, it is important to consider the role of cost while implementing different strategies for

product development. The following paragraph points out the role of considering cost at

different stages of the product development cycle.

If cost consideration is an afterthought, the costs are tallied up and used as the basis for

determining the products price [9]. The primary focus is on product performance, aesthetics or

technology. Companies may get by this approach in some markets and with some products in

the short term. If a competitors product, offering similar features, is sold at a lower cost, then

this will result in a failure of the product (developed as per above statement) in long term.

Also, if cost is one of the design factors, the product cost is estimated based on accumulated

facts and manufacturing estimates. This creates a limit to the minimum cost achievable. For

example, if a current product X1is universally available at $10, the designer will be compelled to

think that a similar product X2 can be manufactured ultimately to cost $10. This limits the

ability of the designer to come up with innovative ideas which would actually result in a

cheaper product with or without improving the product performance. Furthermore, it may

sometimes result in an over-shooting of the cost estimates. Thus the designer has to perform

design iterations to reduce the cost further at a much later-stage of development, resulting in an

extended development cycle and additional development costs.


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Figure 4.1 US and Japan product development cycle [10]

Figure 4.1 shows the difference between a more traditional approach followed by the Western

management and a Target Costing approach preferred by Japanese Management. The Japanese

approach is highly beneficial because it works to control costs actively before or during product

development. Under the traditional approach a company waited until much later in a products

life cycle, by which time a significant part of the costs had become fixed. Consequently, thecompany had little ability to change or control costs. [10]

Traditionally, a Cost Plus approach was widely-preferred by the manufacturers, which is in

sharp contrast with the target cost approach [11]. The traditional approach uses the existing

component and further improvements/developments are carried out to meet the functional

specifications. Therefore, the additional costs incurred due to the improvements are added to

the cost of the existing component. There is an overall increment in developing the new

component. This additional cost in components, multiples at a sub-system level, then at a

systems level and hence in the final cost of a new product (e.g. an automobile), is much higher

or is close to the competitors price range. Thus, there is no significant change as far as the cost

of the product is concerned and therefore is not preferred at a conceptual stage for the

development of the Low Cost Vehicle.


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4.2 TARGET COSTING APPROACH

According to [10] Target Costing can be defined as a cost management tool for reducing the

overall cost of a product over its entire lifecycle with the help of production, engineering, R&D,

marketing and accounting departments. Thus, target cost can only be achieved by followingthe Systems Engineering interdisciplinary approach towards product development. Target

Costing techniques have become increasingly popular in recent years for use in product

development [11]. The final cost of the vehicle can be affected by the different systems

engineering approaches selected at an early development phase.

According to Monden[12], a target-costing system has two objectives:

1. Reduce the cost of new products so that the level of required profit could be

guaranteed, simultaneously satisfying the levels of quality, development time and

price demanded by the market

2. Motivate all the employees to achieve the target profit during the new product

development, turning target-costing into an activity of profit administration for the

whole company, using the creativity of employees from several departments to draw

up alternative plans that allow higher cost reductions.

4.3 TARGET COST FOR THE LCV

The Low Cost Vehicle development attempts to reach a compromising and a possibly optimum

approach to reach the set target cost by combining the benefits of target costing and a

traditional approach. The limitation of applying the target costing approach is that there aresignificant non-recurring costs at the beginning of the development process because the product

has to be conceptualized, designed and manufactured from scratch. The traditional approach of

optimizing existing product/process saves time and non-recurring costs but the additional

improvements leads to significant additional costs of the final product. The Low Cost Vehicle

has a set target cost and is utilizes features and designs from the least expensive car in the world

Tata Nano to develop a Low Cost Vehicle for the US market. Therefore, the approach of

developing the LCV would comprise developments and improvements to the Tata Nano while

keeping the target cost for each system and the total vehicle in mind.

The approach followed to set the target cost for the Low Cost Vehicle (LCV) is as follows:

1.

Defining the target segments small car / sub-compact car segment

2. Identification of the competition benchmarking of the low cost vehicle in US

market

3. Positioning of the product within the target segments LCV target cost set to 20%

less than the nearest competitor

4.

Fine-tuning the product design and pricing cost allocation of systems and sub-

systems of LCV.


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The current price difference between the two least-expensive vehicles, the Nissan Versa 1.6 Base

Sedan ($9990) and the Hyundai Accent Blue 3-door ($9985) currently sold in US is around 0.2%.

To gain a significant competitive edge and to set a challenging target, the Low Cost Vehicle in

discussion is set to be 20% less than the MSRP of the least expensive car currently sold in the US

as of September 2010. The target cost is not based on a cost evaluation method but rather basedon the Target Cost Approach. The target cost of the Low cost vehicle is set to $8000 (USD). The

target cost allocation for the systems and subsystems of the low cost vehicle is based according

to cost distribution data provided by [13].

Table 4.1 LCV Target Cost Breakdown

MSRP $ 8000

Dealer Margin (10% MSRP) [14] $ 800

Factory Invoice $ 7200

Companys Profit (2.78% Factory Invoice) $ 200

Vehicle Target Cost (variable costs plus

development costs) (VC)$ 7000

% (VC) $ (USD)

BIW + Safety 23.2 1621

Engine 16 1120

Interior 15 1050

Transmission+Final Dr 6.24 437

Suspension 3.94 276

Brakes 2.24 157

Steering 1.31 92

Exhaust 0.95 67

Fuel Systems 0.45 32

Wheels & Tires 6.16 430

Chassis Electrical 0.62 43

Accesssories and Tools 0.14 10

Fluids 0.79 55

Vehicle Assembly 23 1610


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Note: 1. The frame (Monocoque structure), bumpers and fenders are included as a part of the BIW

system.

2. The safety system is divided into BIW and interior system.

3. The proposed LCV is a RWD and hence final drive is adjusted with the transmission system.

4. Fluids include all the fluids filled in the vehicle such as engine oil, coolant, power steering fluid,

brake fluid, transmission oil, refrigerant, gasoline and windshield washer fluids.

The manufacturing costs are estimated to be 50% of the total MSRP of the vehicle[14]. The other

50% includes waranty, R&D and Engineering costs, depreciation and amortization, sale

distribution, market advertisements, dealer support, corporate overhead, retirement and health

benefits and gross profit. The above Table 4.1 shows the target costs for each system, to be then

integrated to meet the total target cost of the low cost vehicle. The cost allocation of the systems

shown in the Table 4.1 is the fraction of the total development costs (DC) set for the vehicle

rather than a percentage of the total variable manufacturing costs. Total variable manufacturing

costs include material costs and the labor costs and is about 50% of the MSRP [13-14]. Thevehicle target costs (VC) includes manufacturing costs, divison costs and corporate costs.

Divison costs include engineering, testing and manufacturing costs [14]. Corporate costs include

full salary plus benefits of corporate executives, research and development, cost of money,

capital equipment including facilities and corporate advertisting [14]. The cost distribution in

Table 4.1 include from the concept phase to the final product sale. Thus, these costs include

from engineering costs to the final market costs. To meet the target cost for a particular system,

basic and core systems engineering principles have to be applied. That is to say, all concerned

departments including engineers, sales, marketing, production and finance have to work

together to reduce the overall process costs. The final system thereby developed at the target

cost is not only the outcome of design changes by engineers but includes significantcontributions from the rest of the team.


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CHAPTER 5:

BENCHMARKING


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Benchmarking here is referred to as a comparison tool to analyze the current competing

vehicles in the US market based on their cost and performance. The least expensive vehicles in

terms of the cost are selected as benchmarks. The selected vehicles are the Hyundai Accent Blue

($9985) [15], Nissan Versa ($9990) [16], Chevrolet Aveo ($11965) [17] and the Honda Fit ($14900)

[18]. The cost of these vehicles is the starting price of their base models, i.e. base MSRP

(excluding freight charges, tax, title, license, dealer fees and optional equipment) [15-18].

The Honda Fit was selected because it is best in-class in terms of performance, styling and

sales volume. The LCV concept is not based merely on the cost; the performance of the LCV

should also be comparable for the given market. Therefore, the Honda Fit is included in the

benchmarking process to provide a pinnacle view point to the LCV being conceptualized.

As discussed in Chapter 1, the Tata Nano is considered as an inspiration for the Low Cost

Vehicle concept development. Being the cheapest vehicle in the world, Tata Nano is also

compared (benchmarked) along with the vehicles mentioned above.

Figure 5.1 Cost Comparison

These benchmarked vehicles are compared for the interior and exterior dimensions, technicalspecifications, fuel economy and emissions standards, safety provisions and features offered as

shown below.


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5.1 DIMENSIONS


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Figure 5.2 Major Dimensions Comparison

The above Figure 5.2 gives an overview of the comparison of exterior dimensions and the curb

weight of the benchmarked vehicles including the Tata Nano. It should be noted that the Tata

Nano is not intended for the US market and is being sold in a different automotive sector of the

world (India). Hence the design specifications are suited to the desired market and demand. It

is observed that vehicles selected from the US market are competitive benchmarks of each other.


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Figure 5.3 Performance Comparison

From Figure 5.3, it is evident that the Tata Nano sold in India is not comparable to the vehiclessold in US in terms of the performance and emission standards. The LCV concept in discussion

here attempts to build up from the Tata Nano to satisfy the US driving and emission standards.

Hence, modifications on the Tata Nano can be performed to develop a future LCV.


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5.3 CHASSIS SYSTEMS


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5.4 SAFETY SYSTEMS


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5.5 ADDITIONAL FEATURES


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The Tables 5.4 and 5.5 highlight the importance of selecting the Honda Fit as one of the

benchmarked vehicles. Vehicles selected here other than the Honda Fit have limited features

and the minimum of safety systems as required by the US safety standards. The Honda Fit

specifically exceeds in this category which is reflected in its overall cost. One of the reasons that

can be interpreted for the comparable higher cost of the Honda Fit is the provision of the extra

features and safety systems as standard in the base model. The other vehicles do not provide

some of these features in their base model and this is reflected in their lower prices. Some of the

base models in consideration here can include some optional features at an additional cost.

Some specific features, for example ABS, are standard features in the Honda Fit and are

optional in the base model Nissan Versa at an additional cost. The base models of the Chevrolet

Aveo and the Hyundai Accent does not have the provision to include ABS at all in the vehicle

even if the user/customer is willing to pay the price.

Although, the relationship between cost and features seems obvious, it is important to know the answers

to the questions, What are the minimum features to be provided? How important is the provided feature

to the customer? How much is he/she willing to pay for the provided features? These questions areusually answered by benchmarking the nearest competitors vehicles and/or through customer surveys.


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CHAPTER 6:

LCV ATTRIBUTES AND

DESIGN


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A product is developed to meet a set of attributes derived from various sources such as

customer demand, market needs and/or evaluating the competition. An LCV concept is

designed as a complete automobile for the United States and hence the generic attributes such

as safety, driveability, durability, fuel economy and overall low vehicle cost have to be met

during the product development.

In this chapter, minimum required LCV specifications are derived. The preliminary

specifications are derived from the customer requirements. The approach toward developing an

LCV is to prioritize the functional requirements for a vehicle to be legally driven in United

States.

6.1 CUSTOMER REQUIREMENTS

Customer requirements are translated into functional specifications by implementation of theQuality Function Deployment (CFD) Chart. The traditional approach to collect the customer

requirements through a generic survey has not been put into practice here. Instead what is

needed in a functional automobile has been the major input while formulating the functional

specifications of the Low Cost Vehicle concept. The customer is not neglected here; core focus is

channelized to the basic requirements of the customer for a functional, safe vehicle.

Furthermore, the biggest customer requirement of a cost-effective and low cost automobile is to

be met here. The basic requirements of the automobile have been further classified into different

sub-systems in order to calculate functional specifications based on the need. The technical/

functional specifications so derived are categorized as per attributes of the customer.

QFD resulted in a target quality index for the Low Cost Vehicle concept based on the

benchmarked vehicle the Tata Nano and other low cost vehicles currently in the US such as

the Nissan Versa, Hyundai Accent and Honda Fit. Honda Fit is included in the comparison to

take into account the top-of-the-line features offered in the similar segment of vehicles.


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6.1.1 Quality Function Deployment (QFD) Chart


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Figure 6.1 LCV target quality index

Figure 6.1 shows the requirement to be met by the potential low cost vehicle for the US market.

The Y-axis represents the quality index, where 5 is most preferred rating and 1 being the least

preferred, of the functional requirement and the X axis represents the functional requirements

listed in the columns in Table 6.1. The analysis is based on the comparative data of the current

vehicles in the US and the benchmarked Tata Nano. As seen in the above Figure 6.1, the quality

index of the Tata Nano is comparatively lower than those of the other benchmarked vehicles.

The idea is to derive the LCV/ target quality index. Therefore, the derived specifications for the

LCV concept attain a competitive quality rating on the quality index chart.

Table 6.2 provides comparison of LCV target specifications with the benchmarked vehicles.


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6.2 LCV TARGET SPECIFICATIONS


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Table 6.3 LCV Target Specifications

Vehicle Characteristics Target

Engine Displacement (cc) 1000

Curb Weight (lbs) 2000

Tire size P175/70R14Fuel economy (mpg) 40/45

Suspension Type Front: Independent, LowerWishbone, Macpherson Strut

TypeRear: Independent, Semi

Trailing arm with coil spring andhydraulic shock absorbers

Max torque @ rpm (lb-ft) 100

Engine power (hp) 100

Acceleration (0 60

mph)

12 s

Type of Engine (Fuel) Gasoline

Type of Transmission Automatic

Seating capacity 4

Boot space (cu. ft) 14.68

Provision for A/C Yes

Vehicle dimensions (in) 140 x 62 x 63.5

Type of brakes: Front /Rear

Disc/Drum

Wheel base (in) 90.55

Wheel track (in) 55/55

Steering type Power Rack & PinionTurning circle dia (ft) 30

No. of doors 4+1

Fuel tank capacity (gal) 8

Table 6.3 shows preliminary low cost vehicle specifications (targets) derived from the QFD

chart. The specifications are not physically calculated but estimated from the comparative data

of the vehicles under consideration, basic customer requirements and the benchmarked vehicle

the Tata Nano. The derived specifications are different than those of the Tata Nano. Thus, the

Low Cost Vehicle concept would incorporate modifications for improved safety, drivability,emissions, fuel economy and comfort.


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Front End Structure

Figure 7.2 Tata Nano - Front End Structure [22]

Modifications

Additional reinforcements added to meet frontal impact. Additional

reinforcement in front of the longitudinal rails. Front End longitudinal members

designed to collapse (absorb energy) in the event of frontal impact.

Figure 7.2.1 Front End Reinforcements [22]

Front End Shock Absorber can be inserted to reduce the force of impact.

Figure 7.2.2 Front End Shock Absorber [22]

Upper and Lower cross member made of Al Alloy can be added to the frontal

support frame if the frontal impact protection cannot be met.


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Figure 7.2.3 Upper cross member made of Al Alloy [22]

Similarly, lower cross member of steel with additional crumple structure can be

added to the frontal support frame if needed.

Figure 7.2.4 Lower cross member of steel [22]

Reason for Modification

FMVSS 208 [23]

Comment

Increased front end protection for the small car

Roof

Figure 7.3 Tata Nano Roof [22]

Modifications

Structural reinforcements incorporated to the roof panel. Cross-members added

prevent deformation of the roof as required by the rollover protection standard.


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Additional reinforcements are introduced to comply with rollover protection,

where necessary.

Fig 7.3.1 Roof Reinforcements [22]


FMVSS 208, 216 [23]

Windshield - Front / Rear

Fig 7.4. Tata Nano Windshield Front and Rear [22]

Modifications

Tata Nano uses similar laminated glass for the front windshield. The windshield

mounting would satisfy the windshield mounting standard and will not

penetrate more than 6mm in event of frontal crash.

Tata Nano uses toughened glass for rear windshield. Vehicles sold in US use

similar tempered glass.


FMVSS 205, 212, 219 [23]

Comment

Specifications similar to the windshields in current sub-compact cars.


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Rear End Structure

Figure 7.5 Tata Nano Rear End Structure [22]

Modifications

Rear cross member and rear shock absorber can be used for additional rear crash

protection. As the Tata Nano engine is in the rear, the vehicle must be able to

withstand rear impact without high forces being transferred into the passenger

compartment.

Figure 7.5.1 Rear End Reinforcements [22]

Reason for ModificationFMVSS 208, 301 [23]


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Side Impact Protection

Figure 7.6 Tata Nano Side View [22]

Figure 7.6.1 Tata Nano Door Panel [22] Modifications

Need for more reinforcements and door intrusion beams to door side (Driver/Passengerand Front/Rear).


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Figure 7.6.2 Door Intrusion Beams

In addition to structural reinforcements, interior PP or PU protection for inner

panel can be used for cushioning the impact. This is inserted between the sheet

metal door panels or mounted on inner panel.

Figure 7.6.3 PP or PU Foam [22]


FMVSS 208, 214 [23]

Hatch/ Hood

Figure 7.7 Tata Nano Hood [22]

ModificationsAdditional reinforcement for inner panel if required


FMVSS 208, 301 [23]


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7.2 POWERTRAIN

Engine

Fig 7.8 Tata Nano Engine [22]

Modifications

As per the vehicle power requirements calculations, a bigger engine of about 70

Hp and 110 Nm is necessary to achieve a top speed of 80mph and acceleration

from 0-60mph in 12 secs.


It is required to achieve the vehicle operating speed and performance for freeway

driving and to satisfy the LCV target specifications.

Comment

Approximate weight of the engine is 77 kg for a similar 69 Hp engine used in Fiat

500.


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Transmission

Fig 7.9 Tata Nano Transmission [22]

Modifications

Larger 5 speed transaxle to couple with a bigger engine.


Customer requirement (QFD) and Drivetrain requirements.

Comment

There can be an optional availability of an automatic transmission at an

additional cost to the customer.

Exhaust

Fig 7.10 Tata Nano Exhaust [22]

Modifications

Catalytic converter used to comply with current US emission standards. Larger

muffler needed for the modified engine.


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To regulate engine emissions as per the EPA (Environmental Protection Agency)

standards.

7.3 SAFETY

Airbags

Modifications

Driver, passenger and side curtain airbags are required to be installed in the

vehicle.

Airbag control unit, airbag sensors, to be installed for airbag deployment.


FMVSS 208 [23]

Seat Belts

Modifications

Front seat belt pre-tensioners have to be installed in the existing front driver and

passenger seat belts.

Rear Seat Belts - 3-point seat belt required for rear passengers as Tata Nano hasonly lap belts in rear.


FMVSS 208, 209, 210 [23]


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7.4 CHASSIS: BRAKES, STEERING, WHEELS AND TIRE

Brakes

Figure 7.11 Tata Nano Drum Brakes (Front and Rear) [22]

Modifications

Employ disc brakes in the front.

Employ larger diameter drum brakes at the rear.


FMVSS 135, 106, 116 [23]

With increase in the vehicle speed, and weight, as per the US driving cycle, thefront brakes are required to be changed to disc brakes at the front and a larger

drum brakes for a shorter stopping distance to ensure safe driving conditions.

Modifications

Include Anti-lock braking system in the vehicle

Include wheels speed sensors

Figure 7.12 ABS Module [22]


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For future safety regulations, an ABS module, with wheel speed sensors for ABS

and traction control, needs to be installed.

Steering System (Mechanical Rack and Pinion)

Figure 7.13 Tata Nano Steering Linkage [22]

Modifications

Power steering mechanism employed, for better drivability and comfort.

Increase the length of the tie-rods to accommodate for the increase in wheel

track.

Incorporate adjustable steering column.

Include ignition switch assembly which complies with theft protection standard.

Figure 7.13.1 Tata Nano Steering Shaft Assembly,

Ignition System Assembly [22]


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Power steering mechanism is necessary to ensure drivability with increase in

vehicle weight and to obtain the minimum turning circle diameter required for

normal US driving conditions.

Customer requirements obtained by Quality Function Deployment (QFD).

FMVSS 203, 204, 114 [23]

Wheels and Tires

Figure 7.14 Tata Nano - Front Wheel and Tire [22]

Figure 7.15 Tata Nano - Rear Wheel and Tire [22]

Modifications

Wider 14 in wheels and tires for high speed stability and improved vehicle

dynamics performance.

Spare tire to be supplied for temporary use and in case of emergency.

Install the tire pressure monitoring system. Incorporate into the vehicle using

ABS sensors and ECU to detect the speed variation in case of tire pressure loss.

Display indicator to warn the driver.


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For increased vehicle safety wider wheels and tires should be used.

FMVSS 110, 129, 139, 138 [23]

Suspension Front and Rear

Figure 7.16 Tata Nano Rear Suspension [22]

Figure 7.17 Tata Nano Shock Absorbers Front Strut Assembly [22]

Modifications

Modify the front and rear suspension to accommodate the weight increase and

dimension changes. Optimize the damping and suspension geometry for more

comfortable ride and handling at the designed speed.


Customer requirement - safe and comfortable vehicle feel.


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Fuel System

Figure 7.18 Tata Nano Fuel System, Filling System, Filler Pipe [22]

Modifications

Larger 8 gallon fuel tank for about 250 miles range is required. Fuel tank built

and located as per fuel system integrity requirement. Modification of fuel filler

system is required with evaporative system and ventilation.


Customer requirement for an acceptable vehicle range

FMVSS 301 [23]


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7.5 INTERIORS

Dashboard and Instrument Cluster

Figure 7.19 Tata Nano Dashboard [22]

Figure 7.20 Tata Nano Instrument Cluster [22]

Modifications

Dashboard - Passenger Airbag to be integrated into the Dashboard. Improve the

design and trim material quality for US market.

Figure 7.21 Tata Nano Dashboard using better quality trim material [5]


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Instrument Cluster - Some indicators such as Gear position indicator, Tire

pressure monitoring, Seat belt warning, Passenger Airbag indicator, Door Open

indicator must be included in addition to current tell-tales


Dashboard - FMVSS 201, 208, 302, [23]

Instrument Cluster - FMVSS 101, 302 [23]

Customer requirements, ergonomic standards.

Center Console

Figure 7.22 Tata Nano Center Console [22]

Modifications

Increase the height in proportion to the driver's H - point for ease of

operation/access.

Material and trim of center console slightly improved for better feel and

durability.


Ergonomic standards, Customer requirements.

FMVSS 201, 302 [23]


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Interior Insulation

Figure 7.23 Tata Nano Front Firewall Insulation and Floor carpet [22]

Modifications

Provide thicker insulation in front firewall and in the passenger compartment

required to meet the NVH requirements.


For better NVH properties.

Comment

Heat insulation not required on the front firewall as the engine is in the rear.

Thicker insulation minimum of 12 mm preferred.

Roof liner

Modifications

Thick insulation for better texture and feel.

Cushion to protect against accidental head-bumps and during roll over

protection.


FMVSS 208, 302, [23]

Customer requirements (QFD)


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Driver and Front Passenger Seat

Figure 7.24 Tata Nano Front Seats [22]

Modifications

Side airbag integrated into seat.

Incorporate longitudinal, backrest swivel and height adjustment in seat.

Increase the overall seat width and seat cushion length for comfortable seating as

per the US customer ergonomics requirement.


FMVSS 202, 201, 207, 302 [23]

Customer requirements (QFD).

Rear Passenger Seat

Figure 7.25 Tata Nano Rear Seat [22]


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Modifications

Increase the overall seat width, seat cushion length and backrest height for

comfortable seating as per the US customer ergonomics requirement.


FMVSS 202, 201, 207, 302 [23]


Accessories

Modifications

Accessories such as 12V DC outlet, Audio/CD Player, Audio Auxiliary, etc can be

provided at an additional cost to the customer.



Comment

Can be provided as optional feature in higher-end models.

HVAC

Figure 7.26 Tata Nano Air Conditioner [22]

Modifications

Air Conditioner - Can be provided as an option.


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Heater System - Needs to be integrated into the vehicle dashboard. Includes

heater, evaporator, air vents, window defrosters, heater pipes, etc.

Can be provided as an option.



Comment

Top end Tata Nano model has air conditioner but does not have provision for

heating system.

Door Trim

Figure 7.27 Tata Nano Door Panel and Trim [22]

Modifications

Design of door handles and controls as per US ergonomic requirements.

Incorporation of power window and door control as an option.


Customer requirements (QFD) and ergonomic standards.

FMVSS 201, 302 [23]


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Door Stopper

Modifications

Door stopper to prevent the doors from opening completely when not required.

(during parking near other vehicles)

Figure 7.28 Typical 2 stop door stopper [22]


Ease of entry/exit.

Safety.

Comment

Tata Nano does not have a door stopper, the door opens fully. Inconvenient

during parking in tight spaces.


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CHAPTER 8:

LCV SALES POTENTIAL


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The modifications discussed in Chapter 7 are applied to the Tata Nano in order to realize the

potential of a similar Low Cost Vehicle concept and to satisfy the vehicle attributes of the US

market. This chapter discusses the potential sales for the developed Low Cost Vehicle concept

in the United States. The driving factor for the development of the LCV concept is its price

which would be its ultimate selling point (USP). This would create a new low cost benchmark

for other competitors and would motivate them to develop vehicles competing at a similar low

cost, thus exploring a completely new segment for ultra-low cost vehicles.

An early estimation for the sales potential at the concept stage is required to have a preliminary

idea about the total sales volume of the final production vehicle. Judging from the sales volume,

a corresponding infrastructure, in terms of manufacturing plant, assembly plant, etc. for the

vehicle can be developed to realize the cost benefits for the predicted sales. This is especially

crucial for a low cost vehicle because if sales are ignored at the concept stage, it will be difficult

to predict the sales profit for such a low cost vehicle.

8.1 CURRENT MARKET TRENDS

An average sub-compact economical vehicle currently ranges from $12k-$16k. There are several

economical vehicles available, the least expensive being the Hyundai Accent Blue at $9970

currently being sold in USA (see Figure 8.1). Table 8.1 shows the most economical cars currently

being sold in USA [15-21].

Table 8.1 Economical Vehicle Prices in Current U.S. Market

VehicleMSRP

(USD) $

Hyundai Accent 3 Door Blue 9985

Nissan Versa 1.6 Base Sedan 9990

Chevrolet Aveo Sedan 11965

Kia Rio 12295

Toyota Yaris 12605

Ford Fiesta 13320

Honda Fit 14900

Despite the low prices of these vehicles, their sales volumes have not been very promising [24-

25]. This might be due to the relative difference between the cheapest vehicle and the more

reasonably priced, which includes more features. Nevertheless, the concept of a small car has


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been somewhat accepted by the US customer and is validated by the sales incremental increase

from 14.5% in 2007 to 15.7% in 2008 [25]. This suggests the potential of more sales for the small

car market in the future. Figure 8.1 shows the currently-available low cost vehicles in the United

States.

Figure 8.1 (a) Hyundai Accent Blue ($9985) (Left) and Chevrolet Aveo Sedan ($11965) (Right)

Figure 8.1 (b) Nissan Versa ($9990)

Table 8.2 shows the changes in automotive sales trends in passenger cars and SUVs in three size

categories. It shows the sales increment (market share increase) of the compact cars and SUVs

and highlights the changing trend from big cars to compact/sub-compact cars.


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Table 8.2 Changes in Market Trends [26]

Category2003 -2008 Market Share

Change

Compact SUV 61.65%

Compact Car 35.71%

Large Car 26.75%

Midsized Car -3.80%

Midsized SUV -12.58%

Larger SUV -20.41%

The above Table 8.2 shows that because of the customer preferences to environmentally-

friendly and fuel economy vehicles, the sales figures of the SUV seem to have declined over the

period. At the same time, the market share of compact and sub-compact cars representing the

more fuel-efficient and cost-effective automobiles have increased. Based on these statistics, the

sales potential of a reliable yet low cost vehicle can be predicted to be competitive with other

compact and subcompact cars in the market.

Table 8.3 shows the sales volumes of selected compact and subcompact cars (based on relevant

dimensions, weight and/or the base MSRP).

Table 8.3 Sales Volumes for the Selected Compact/Sub-compact Cars for 2006- 2008 [27]

Model 2008 2007 2006

Mini Cooper* 54,077 42,045 39,171

Smart Fortwo* 24,622 0 0

Ford Focus 195,823 173,213 177,006

Chevrolet Aveo* 55,360 67,028 58,244

Chevrolet Cobalt 188,045 200,620 211,449

Pontiac Vibe 46,551 37,170 45,221

Honda Civic 305,509 292,192 272,899

Honda Civic* 33,780 38,903 43,739

Honda Fit* 79,794 56,432 27,934

Hyundai Accent* 50,431 36,055 34,735

Hyundai Elantra* 94,720 85,724 98,853

Kia Rio* 36,532 33,370 28,388

Mazda3* 109,957 120,291 94,437Mitsubishi Lancer* 27,861 31,376 23,167

Nissan Versa 85,182 79,443 22,044

Nissan Sentra 99,797 106,522 117,922

Suzuki SX4* 29,483 15,209 3,453

Model 2008 2007 2006

Toyota Corolla/Toyota Matrix

252,877 348,016 335,054


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Toyota Corolla* 98,130 23,374 52,334

Toyota Yaris* 102,382 84,799 70,308

Total Sales 1,970,913 1,871,782 1,756,358

*Import Vehicles: vehicle not manufactured in United States of America

8.2 SALES ESTIMATION

The sales potential methodology of the Low Cost Vehicle is developed based on the available

historical statistical data. Figure 8.2 shows a regression-fit to the data presented in Table 8.3. The

curve in Figure 8.2 can be used to extrapolate future sales potential of similar segment cars.

Figure 8.2 Estimated Sales of Compact/Subcompact Vehicles

Using the above estimates, the sales of the Low Cost Vehicles in three different segments can be

predicted as follows:

New LCVs: The corresponding sales potential for the Low Cost Vehicle is estimated to

be a mere 2% of the total sales of the selected sub-compact and compact cars listed inTable 8.3.

. 1 0.02 1970913 39418 (1)


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Used Cars Replacements by LCVs: The government safety and emission standards are

constantly being updated with as new technology becomes available over time.

However, there are serious risks involved with the sale of an old used car in terms of

occupant protection and environmental conservation. Thus, an LCV satisfying all

government regulations and standards, could break into this market to increase its total

sales. The estimated sale for the LCV under this market is assumed to be 5% of total

used vehicles of year2009. [28]

. 2 0.05 1528125 76406 (2)

Other Market Replacements by LCVs: Other markets such as fleet market and urban

city dwellerscan also be included in the group of potential customers for the LCV based

on the LCV price and size. The sale for the LCV in this market is assumed to be 25000

per year.

. 3 25000 (3)

Considering these market options, the total annual sales of the LCV can be predictedand/or

estimated.

. . 1 . 2 . 3 (4)

. 140,824

The predicted sales represent the market for the LCV concept generated. It highlights the fact

that LCV intends to open a new market for itself. The sales numbers either obtained or

estimated are derived after following a conservative approach while analyzing changing market

trends.


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CHAPTER 9:

DISCUSSION &

CONCLUSION


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9.1 LCV MANUFACTURING, ASSEMBLY AND MARKETING

STRATEGIES

The target cost of the Low Cost Vehicle concept can be materialized not only by cost-effective

and functional design modifications but also by cost reductions due to improvements in

purchasing, manufacturing, assembly, marketing and sales operations. Thus, to achieve one

common objective in all processes from the concept phase to marketing of the product, there has

to be a common motive of satisfying the ultimate objective of meeting the target cost set for the

LCV. Hence, LCV can only be realized by the combined efforts of all the departments of the

company. Systems Engineering principles must be applied at every step from concept

development to production and sales.

To achieve the target cost set for the Low Cost Vehicle, it is crucial to optimize the design -make it as functional as possible, improve manufacturing process what works rather than

using complex and highly-precise processes, assembly plant layout optimize assembly

processes, possible reduction of dealer margin and/or apply new sale techniques. These

considerations if taken into account at an early conceptual stage of product development will

lead to the most cost effective, functional design. This approach can be initiated by any

department (Engineering, Production, Finance, Sales and so forth) in order to meet the target

cost of Low Cost Vehicle.

Manufacturing process and material selection for a component or a system in general is one of

the key factors affecting the overall cost of the product. If the manufacturing process for acomponent/system is selected early on in the development cycle, it pays ahead in time to

generate a realistic estimation for the complete product. The manufacturing process can be a

decision-making parameter for selection of one or more concepts from the cost perspective.

According to Table 4.1, the vehicle assembly comprises of 23% of the overall cost distribution of

the vehicle. If vehicle assembly is optimized, overall cost of the vehicle can be reduced. The

vehicle assembly is dependent on the HPV (Hours per vehicle) of each vehicle.

HPV A

A (5)

HPV is dependent upon the type of the vehicle, complexity in assembly, plant layout, location

and labor productivity. The measure of productivity of the assembly plant depends on the HPV

of the vehicle assembled. Therefore to reduce HPV, as per the equation, the assembly hours on

the vehicle have to be reduced or more have to be produced for the given man-hours.


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It is proposed that integrated system units to be supplied directly by the suppliers and

assembled at the assembly plant can reduce the HPV. The integrated system unit might avoid

complex assembly operations and could be quicker to install and assemble, thereby reducing

the HPV. By implementing Just-in-Time principles to both assembly operations as well as part

delivery by the suppliers, it reduces inventory costs, requires less space for assembly, and

further help to avoid defective inventory build-up. This points out the importance of integrationof the suppliers in the vehicle assembly process.

According to [14], the dealer margin is 15% to 22% of the cost of the vehicle to the dealer or 14%

to 18% of the vehicle MSRP. This percentage can be reduced to make the vehicle more

affordable to the customer. The dealer margin can be reduced if the dealer does not have to

invest in keeping extra inventory of the product. This would avoid larger dealer occupied area,

inventory maintenance cost and excessive utilization of resources. Following the approach

similar to Kanban (Pull Approach), the dealers can call for additional inventory depending on

the customer order.

The current low cost vehicles as discussed above in Table 8.2 sold in the US are imported fromoutside the United States for cheaper manufacturing costs, cheap labor and cheap real estate.

These factors add up to reduce the overall cost of the vehicle. It is proposed to investigate the

real time costs of importing the completely built units (CBU) or to import completely knocked

down units (CKD) and to set-up the manufacturing facilities in a region with minimal

operational costs to achieve the target LCV cost.

9.2 CONCLUSION

The LCV concept described in this report illustrates the approach of starting with the review of

the Tata Nano design and integrating knowledge from the QFD and customer needs to modify

the vehicle to meet the current federal regulations given the goal to create an $8000 vehicle. The

next major challenge is to develop a detailed engineering plan with necessary implementation

of the Nano philosophy to meet the target cost structure.

The authors perceive that the LCV concept is achievable only by following a concurrent systems

engineering approach. Furthermore, since cost is a major design factor, it is necessary for all the

departments to work as one team right from the concept stage to achieve the LCV target cost.

The development of the systems, subsystems and components should focus strictly on the basic

functionality rather than additional auxiliary add-on features provision. These add-ons mayincrease the utilization of resources in terms of time and capital investment to develop the

system, subsystem and/or component.


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9.3 FUTURE WORK

To prove the feasibility of the LCV concept, future research should be directed in many areas.

Clearly, there is a need for extended research for detailed designing of the proposed

modifications to meet the target cos

a low cost vehicle concept for the u.s. market

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